Questions:
1. I will probably just take the cash we just got and continue down the Core Four plan i've been sticking with, albeit with lower bond exposure.
I struggle a bit with just putting it all in our retirement fund rather than just mirroring that in a non-retirement vehicle.

2. How does one factor in expected inheritance?

Thank you very much for reading.

Seth

Last edited by sethdf on Wed Oct 11, 2017 9:08 pm, edited 2 times in total.

Questions:
1. I will probably just take the cash we just got and continue down the Core Four plan i've been sticking with, albeit with lower bond exposure.
I struggle a bit with just putting it all in our retirement fund rather than just mirroring that in a non-retirement vehicle.

2. How does one factor in expected inheritance?

Thank you very much for reading.

Seth

The underlined and red colored should be removed as the fees are too high. Utilize the total stock market, total international stock market, and total bond fund space in your 401k and your IRA's to cover those two. You could also consider adding some Total Bond Fund in the Roth IRA's if you need the space outside of the 401k? At age 40, you have very little bond exposure so that might be a priority. You could also add the Vanguard Municipal Bond Fund in your taxable to increase your bond exposure.

Edit: Are you saying that 50% of the 401k has to be invested on that list of available funds with the high expense ratios?

A 95% stock allocation is high risk even for a younger person. I think you should consider increasing it to 20 or 25% at least.

I would hold stock index funds in taxable and increase the bond portion in the 401k.

It does not appear to me that you are saving nearly enough for retirement. If there is a future inheritance, that could make it OK. But what if there isn't a future inheritance? I would not count those chickens before they hatch.

Edit: Are you saying that 50% of the 401k has to be invested on that list of available funds with the high expense ratios?

This is how I read it. Which is too bad but at least it's not 100%!
I didn't research all of your options but the two you chose seem fine and are among the least expensive options.

It does not appear to me that you are saving nearly enough for retirement.

Yeah. What are you projected retirement expenses and age? If you add 7200 a year and work until you're 65, with good market returns you could have ~1.5 million (I estimated "low to mid six figures" as 300k). That's 60k a year (don't forget taxes). But in the 25% bracket you're likely making north of 100k, and if only saving 7k a year you are spending more than that.

With regards to the inheritance I would weigh it like any other uncertain event. If the person is currently wealthy and terminal, that makes it fairly likely. If they are wealthy and healthy, they may very well not be wealthy by the time they pass.

@mhc Yes, CyclingDuo and mega317 are correct, I am stuck with 50% of the total value of my 401k in American Funds and with those pretty poor choices. I'm paying $100 a year to have 50% of it self-directed in an Ameritrade account.

@retiredjg Yes, I am starting to slowly increase my bond exposure but should probably accelerate. I am going to do my best to try to put a bit more away. Any recommended calculators to estimate where I may be in 20 years so I can mess with the numbers?

@mega317 Your estimates are pretty accurate.

Yes, I will behave as though inheritance is not going to happen and try to sock away more, in addition to increasing my bond exposure.

Any recommended calculators to estimate where I may be in 20 years so I can mess with the numbers?

I like to use excel, and this is how I came up with that 1.5 million estimate in my previous post:
Excel's financial functions let you solve for the rate, number of periods, contributions (pmt), present value, or future value by entering all the other numbers. So for your example I used Future Value
=fv(rate, nper, pmt, pv). I used 5% for "good market returns" so (0.05, 25, -7200, -300000) = 1.36M.

But you can solve for any variable. Let's say you can increase your contributions to 10k, and want to know how long to reach that same 1.36 million figure.
=nper(rate,pmt,pv,fv) (0.05,-10000,-300000,1360000) = 23 years.

Or how much do I need to save to get 1.36 million in 20 years?
=pmt(.05,20,-300000,1500000) = $17,000 a year.

FYI I use a rate of 3% which may or may not be too conservative. I'm at least 20 years from retirement so any precision is an illusion.

@mhc Yes, CyclingDuo and mega317 are correct, I am stuck with 50% of the total value of my 401k in American Funds and with those pretty poor choices. I'm paying $100 a year to have 50% of it self-directed in an Ameritrade account.

In that case, continue to lobby your employer for a better, lower cost 401K plan. They are out there and if enough employees pound the table on this, perhaps the strings can be cut with the American Funds plan, or at the very least can be reconsidered. HR needs to know how disappointing the plan they chose is for the employees.

We feel it should be a part of everyone's job search to do some research when applying for jobs. High expense fees on plans can mean an employee has to save twice as much over their 30 - 40 year career to equal the returns of a low cost index fund plan. Here's my favorite table for that as it compares low cost with high cost:

Look at the difference once you hit 40 years of saving between the low cost and higher cost ER fees!!! Obviously, it is hard to predict how long one will stay with a certain job, but it is absolutely worth researching before accepting a position (if one has the choice to choose between jobs that is). Obviously, there are many other factors at play - salary, location, career advancement, entry level vs. mid-career vs. late career and on and on. However, knowing that the 401k plan may have such high expenses that one is going to have to save twice as much as a similar job that includes the lower cost funds (ER fees) - it adds up over one's full working career. The more future employees consider this, perhaps the more HR departments will take a closer look at their plans and make a move to improve their benefits and 401k plans.

That page also talks about the plans with high cost or mediocre choices...

401(k) plans with high cost funds

See also: Expensive or mediocre choices

Many company plans contain high-cost funds which make them unattractive. If you have such a plan, look for one or two index funds or a bond fund that can be used. If your company offers matching funds up to a certain contribution level, it's always wise to use the company plan. If there is no match, the power of tax-deferred compounding and automatic contributions still favors using the plan with limited contributions.

What's the intended longevity of staying at the current job with the high cost 401k plan? Is there a possibility that your career or job will be moving on at some point in the future?

Certainly stick with contributing the amount to get the company match (the free money part of the deal). Max out the ROTH IRA's as well this year with the cash you came into.

How to factor in expected inheritance? Make sure you read the Windfall Wiki page. Depending on the form you receive the assets in from an inheritance, there will be issues to deal with from a taxation standpoint at that time. Some may be a stretch BDA IRA, some annuities, some may end up in taxable with a stepped up cost basis, etc... - so you will adjust/tweak your current plans when and if the inheritance occurs. Depending on your timeline for that scenario, it wouldn't hurt to read up on all of that before it occurs so you are prepared.

@ CyclingDuo Yes, I could mount an effort to get our options changed, but based on the culture at our company, I highly doubt any change would come about. I really like my job...it is the 401k that is one of the worst aspects of it, really. Since I can move 50% of my total 401k value into Vanguard funds (for a fee of $25 a quarter), I feel a bit better about it. I believe I'm the only one in the company exercising this option. The only way I would leave would probably be if I were let go, so I see it as a long term position. Thanks for all the advice!